I had a bad feeling about the property market long before it became fashionable to do so. This was because I saw the beginnings of the collapse of the sub prime mortgage business in the States at first hand.
Yesterday I checked out the local property market by popping my head into the door of a couple of estate agents (realtors) and they confirmed what we all know. There’s virtually nothing good to report, with sales now a pathetic percentage of last year’s size and prices tumbling.
More scary was the news one of them shared in which he told me that the lenders are repossessing the defaulting properties much faster than previously. He felt these repossessions are, in some instances, a first rather than last resort. In his small local agency he had been given 4 repossessed homes to sell this week, whereas he used to get, perhaps 1 per month last year. This is an alarming rise, made more so by the fact that the agent told me he and the lenders know he has no realistic chance of selling these properties in the present market conditions. Ask yourself the question, so if you repossess the property but can’t sell it, who is benefiting?
This morning I had the opportunity to listen to BBC radio 4 at breakfast. The discussion revolved around the various views as to whether there was a purpose for blogging, now, or in the future.
The usual arguments were trotted out which I shall précis by stating the obvious, we write because we have to, its in our bloodstreams, and the upshot should be that in doing so we communicate to others our personal views.
Sometimes, like yesterday, a writer, using this medium just wants to share a mood, in that case, joy and happiness to lighten the general gloom, and sometimes, like today, to warn of some impending peril, and to make sure my audience is aware of the danger.
One of the major catastrophes of modern times is coming to pass, and its being misunderstood and relatively relegated in importance on our news among the welter of horrible economic news. I am addressing the issue of home repossessions. Let’s examine that sentence again, we are talking about taking away people’s homes, not a few, not hundreds, not thousands, but if this slide continues it could be hundreds of thousands.
We cannot let this tragedy happen, we must not allow it!
The main reason I make this statement so emphatically is not because I care any more than any of you about the individuals and families affected, because no one wants to see people suffer arbitrarily. No, although this is terrible, more awful will be the ramifications to our societies and countries if we allow a new underclass to develop. This will be the inevitable result if hundreds of thousands of people are to be effectively made homeless.
The same people will, to a very large extent feel disaffected and disenfranchised, cheated and abused. They will be angry, and a great many of their number will suffer social and educational disadvantage from this starting point. An increased and growing number of the dispossessed to support, nurture and assist would thus burden the remainder of the population.
Ironically the property market collapse has come at the precise moment when we require more housing to meet the growing population needs. Whereas we should be finding ways to encourage house building start ups we find ourselves with some of the lowest ever recorded numbers.
The government has again made the right noises about keeping people in their homes as much as possible and has issued a directive to the courts to make sure they point the mortgage companies towards this end. In practical terms this means that they are now going to be compelled to write a couple of letters to the people in arrears and make a phone call or two. It doesn’t mean directing the courts to put a stop to all repossessions for a hiatus period, of let’s say 6 months. That is what this situation demands.
Many of my readers will be reaching for their electronic pens to send me a message condemning me for not pointing out that a great many defaulters got themselves into this situation and therefore, being responsible for their own actions they should have to deal with the consequences. There are, obviously, some people that fall into that category. While protecting the innocent victims of global economic catastrophe some of the indolent and crafty will, by definition crawl through the cracks like such people generally do. But right now there is a greater good that must be served, even if it means some of these social cockroaches surviving to be found out another day.
However, and we must not lose sight of this, the population did not suddenly sprout a tail and become indolent and devilish. The lenders encouraged, in fact enticed borrowers to take up their totally irresponsible offers of funds that could never be repaid if any of the economic circumstances prevalent at the time changed. And they changed big time! People are beginning to lose their jobs, loans are no longer available, and property values have plummeted. As a result you have the iniquitous situation in which, in many instances, as low cost, fixed rate interest mortgages fall due they can only be replaced by variable rated principal and interest mortgages. This can mean an increase in cost of double at exactly the same moment when the property in question goes into negative equity! That is an insupportable conundrum for any homeowner and the natural inclination will be for them to simply give their keys to the mortgagor and walk away.
If you take a moral stance on irresponsible borrowing how about taking an equally moral position on irresponsible lending that created the situation. And, following this logical yellow brick road, how about blaming the government and FSA for failing to stop it, in fact encouraging this lunacy?
Again I repeat, we cannot let this property eviction campaign of rampant repossessions to happen or we will all suffer a terrible a whole series of long-term consequences.
It would be to our huge advantage to find ways to keep all these families in their homes over the next two to three years and stop these hugely damaging outcomes before they begin. It’s vital that we act now to prevent total property market disintegration fracturing the cohesion of our societies long term. If we take a longer, more enlightened view it will benefit everyone, not least all the families who will otherwise be out on our streets this winter.
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Hello Tony
ReplyDeleteWhat you point out that the lenders are getting quicker at pulling the stops (not as a last resort) goes to the heart of the matter of the global crisis that threatens to spread and deepen. This is one example of what will make the difference between a severe recession and a profound global depression with terrible consequences. This "everyone save his skin" attitude the lenders are taking is precisely the opposite of what the times call for.
The shaming and blaming at critical junctures has historically produced the greatest catastrophes. For example the burden of WWI put on the German State, or the economic punishment of the establishment during the 1929 crisis. The example of supporting the financial system is a text book example of what to do, as opposed to saving your own skin (government raising taxes, tariffs and interest rates seeking to save itself – i.e. the 1929 crisis).
But at present governments are merely mechanically applying a formula of dealing with this "save your skin" instinct. They do not fully realize, as you imply, that the same principle needs to apply at all levels. What good is it to save the intermediary (the banks) if you annihilate the final customers? Investors and companies are also blinded by their own fears to support the mechanistic intervention. But what will it solve if their customers are decimated?
In the case of banks pulling the stops, invoking the letter of their documents as if they were innocent victims of the greed of others, amounts to raising tariffs, interest rates and in sum, it is the same as blocking people out of the economy. The operation may succeed to save the bank but the patient will perish and likely also the bank will follow. This course of action will irremediably lead to a severe depression; demographics that should act as a positive saving point, through the vast contingents of people joining in the world economy, could easily be turned into a dead weight by the mindless application of this heartless formula.
Huge value has been destroyed and only a shoulder to shoulder reflection of each one's responsibility and equitable sharing of the suffering (never an easy thing) can prevent the unfair allocation of burden. But it is not possible to gain conscious awareness in haste. Time is needed to reflect; maybe the three years you mention is sufficient for voluntarily facing the problem. Just like resources are necessary in the banking system to buy time, so also time is needed to protect the family's home integrity. If the State is willing to act as the long-term factor of equilibrium by taking equity in banks, perhaps a similar line of thinking could be taken around the equity of homes that would throw families the indispensable lifeline.
Society should be given time to figure a solution and everyone should actively take part. The monumental blindness to which as a society we are prone, as the excessive asset prices demonstrate, is not an individual problem alone. In some measure everyone has participated, winners and losers, orchestrators , players and audiences alike. This simple fact cannot and should not be we swept under the carpet. It will require all the self criticism of which we are capable and a willingness to explore the role of psychic processes in human beings. But most importantly it will require meditating on what of the present set of deeper drivers of behavior is changing? What is it that we fear so much that we are willing to cling-on so desperately to asset values?
Last time around the great depression preceded the emergence of gender equality as a driving force of social change. In still earlier great cycles it was some other aspect of social inclusion that eventually led to an enlarged view of the world socio-politico-economic scene. To take time to reflect is especially important today because everyone suffers from haste and cannot but imagine a process that leads to more of the same. Most of us are not really prepared or even know how to look at what may be underlying currents that could shed light on the growing frustration and disappointment people experience. Strong currents similar to those in previous great cyclical changes are at play, and without time to reflect and accept those changes (the recession scenario), a much graver and nasty situation may become unavoidable (the decade long depression outcome).
"Time" and time alone can bring equilibrium back. Rash action to repossess is a clear signal of panic that will breed further ripples of the same destructive kind, for example in the form of disenfranchised families and desperate misery.
Aleks Blumentals